Overseas production cuts GDP growth: economists

By Kevin Chen / Staff reporter

The government has forecast that the nation’s economy will regain a firm footing next year in view of the global macroeconomic recovery, but economists believe high overseas production by local manufacturers will continue undercutting real GDP growth.

Last month, the Directorate-General of Budget, Accounting and Statistics forecast the nation’s GDP growth would expand to 2.59 percent next year from an estimated 1.74 percent growth this year. Yesterday, the Council for Economic Planning and Development said it had set a target of 3.2 percent for GDP growth next year.

However, as long as local manufacturers continue to relocate their production facilities to China and Southeast Asia rather than returning to Taiwan, the improved global demand is unlikely to translate into actual growth in exports and help contribute to GDP growth, economists at Yuanta Securities Corp (元大證券) and Credit Suisse AG said.

“While export orders and the economies of major countries are trending up simultaneously, Taiwan’s actual exports remain weak, leading to stagnant GDP growth,” Yuanta economist Aiden Wang (王誠宏) said in a report yesterday.

Based on the brokerage’s research, the nation’s GDP growth has continued to deviate from the performance of the local bourse and overall corporate earnings trends in recent years.

“Our interpretation of the situation is that Taiwan’s economy is fundamentally stronger than its GDP shows; however, its manufacturing industry contributes far more to other countries in terms of GDP growth than to Taiwan itself,” Wang said.

Years of relocation of Taiwanese production lines to China and Southeast Asia has led to a growing discrepancy between the growth in export orders and the real status of the nation’s outbound shipments, Credit Suisse economist Christiaan Tuntono said.

Export orders — an indication of Taiwan’s product and component shipments to overseas markets over the next one to three months — increased for the fourth consecutive month in October, but Taiwan’s custom-cleared exports improved only slightly last month following two straight months of annual declines, according to government data.

“The very high overseas production ratio of the growing electronic, information and communication export orders are the reason why we do not see more of the improved global demand being transmitted into Taiwan’s actual export growth in recent months,” Tuntono said on Tuesday last week.

Last month, a record 52.9 percent of all export orders received by local manufacturers were produced in overseas factories, Ministry of Economic Affairs data showed.

Tuntono said the divergence between export orders and actual exports is causing concern about whether the nation’s economy is indeed on the verge of a recovery due to improving global demand.

Meanwhile, the nation’s slow progress in signing free-trade agreements (FTAs) is not helping improve the situation, another economist said last week.

Chu Yun-peng (朱雲鵬), an economics professor at National Central University, said on Thursday last week at a seminar that a potential FTA between China and South Korea could become the biggest variable in forecasting Taiwan’s economic prospects for next year, among other challenges.

Once South Korea signs an FTA with China, its petrochemical, textile, steel and machine tool exports to China will be duty free, while Taiwanese firms will have to pay tariffs and face more competition in the Chinese market, he said.